February 19, 2013

Veterans Affairs Bans Incentive Compensation Based on Securing Student Enrollments or Financial Aid

Holland & Knight Alert
Paul G. Lannon

This alert is designed to help educational institutions understand the new Improving Transparency of Education Opportunities for Veterans Act, which establishes a ban on incentive compensation based on success in securing student enrollments or financial aid.

What has changed?

On January 10, 2013, Congress directed the Secretary of Veterans Affairs to "develop a comprehensive policy to improve outreach and transparency to veterans and members of the Armed Forces through the provision of information on institutions of higher learning." To help ensure fair treatment of service members and to reduce the risk of fraud, this new law includes a ban on incentive compensation based on success in securing student enrollments or financial aid. Many institutions will be familiar with this ban because the U.S. Department of Education imposes the identical prohibition on educational institutions accepting federal student aid under Title IV of the Higher Education Act. Now the ban applies equally to educational institutions accepting federal financial aid for veterans or service members, even if those institutions do not participate in Title IV funding programs. See Public Law 11-249 [HR 4057], amending 38 U.S.C. § 3696.

What is prohibited by the ban?

The ban applies to "any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid." There are two important features of this prohibition. First, it applies only to incentive compensation, such as commissions, bonuses or other supplemental payments. It does not apply to an employee’s base salary or wages. Second, it prohibits only those incentive payments which are linked directly or indirectly to securing enrollments or financial aid. Bonuses based on merit or other factors are permissible.

Who is subject to the ban?

The ban applies to both employees and contractors, whether "persons or entities," but only if they are engaged in: (1) student recruiting activities, (2) admission activities, or (3) decisions regarding the award of student financial assistance.

How can institutions ensure compliance?

To comply with the new law, institutions accepting funds from Veterans Affairs must follow a three-step process: (1) identify which employees and contractors are engaged in student recruiting activities, admission activities or decisions regarding financial aid awards; (2) check whether they are receiving incentive compensation, and if they are, (3) determine whether their incentive compensation is based directly or indirectly on success in securing student enrollments or financial aid.

Where can institutions find guidance?

There are several sources of guidance to help institutions comply with this compensation restriction. By statute, Veterans Affairs must implement the ban in a manner consistent with its implementation by the Department of Education under Title IV. Consequently, institutions can look to the Department of Education regulations and decisions and expect similar treatment by Veterans Affairs. Particularly helpful is the Department of Education’s Dear Colleague Letter of March 17, 2011, in which the agency attempts to delineate which job functions will trigger the incentive compensation ban and which types of compensation will be affected. The new law also directs Veterans Affairs to provide institutions with assistance in complying with the new rules. Legal counsel should be consulted regarding specific cases.

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